Aid for Trade: Prospects for the Future
June 6, 2006
This policy conference on prospects for the emerging Aid for Trade agenda at the World Trade Organization was designed to raise awareness in Washington about the importance of Aid for Trade and to be a forum for discussion to help shape the forthcoming WTO task force recommendations.. Agreement on Aid for Trade will be a key component of a successful, pro-development outcome to the Doha Round.
This summary was compiled by Kristin Wenderlich and Alton Buland of the Woodrow Wilson Center and Vanessa Ulmer and Kari Heerman of the German Marshall Fund of the United States.
Plenary I – Setting the Policy Agenda
Ambassador Mia Horn-af-Rantzien, Swedish Ambassador to the WTO, and chair of the Aid for Trade Task Force
Valentine Sendanyoye- Rugwabiza, Deputy Director General, WTO
In her opening remarks, Valentine Rugwabiza, Deputy Director General at the World Trade Organization (WTO), reminded participants that this is a key moment in both the Aid for Trade (A4T) and the Doha Development Round discussions, the current round of WTO negotiations, launched in late 2001. Negotiators are approaching their last chance to agree to modalities on agriculture and non-agricultural market access, as well as to make progress on trade in services, before the expiration of U.S. Trade Promotion Authority in 2007. The details are complicated, but the basic question is clear: Are developed countries serious about offering developing countries a balanced trade deal and assistance necessary to promote development? Furthermore, are developing countries serious about making necessary reforms in their own economies?
Ambassador Rugwabiza characterized trade reform and Aid for Trade as two independent and mutually reinforcing goals which are crucial to realizing a Development Round. First, rich countries must reduce their agricultural subsidies and tariffs, which effectively keep developing countries out of protected agricultural markets. Rich countries also place disproportionately high tariffs on the most important industrial exports of developing countries, such as apparel. Developing countries also must bear responsibility, notably by reducing barriers to South-South trade. On average South-South protection is four times higher than North-South protection. Finally, A4T – a new area for the WTO – is a necessary and important complement to trade liberalization. Many developing countries have been unable to benefit from existing market access precisely because they lack sufficient productive and trade capacity. A4T provides an opportunity to translate two principles into concrete action: first, the WTO's mandate to promote coherence in economic policy making, and second, the 2005 Paris Declaration on aid effectiveness. The WTO, which is a trade rule-making body (not an aid delivery agency), must work together with many partners to realize these goals.
Mia Horn-af-Rantzien, Swedish Ambassador to the WTO and chair of the Aid for Trade Task Force, focused her remarks on the process of tackling this agenda "in the making." At the Hong Kong Ministerial meeting, trade ministers agreed to make A4T part of the WTO's work program, mandating the creation of a Task Force to provide recommendations on how to operationalize A4T. The Task Force is made up of thirteen WTO member countries: Barbados, Brazil, Canada, China, Colombia, the European Union, Japan, India, Thailand, the United States, and the coordinators of the ACP (Mauritius), the African Group (Benin) and the Least Developed Country (LDC) Group (Zambia). Each country is represented by their Ambassador to the WTO plus one additional official selected to contribute development expertise, a structure that is unprecedented at the WTO. The Task Force has met four times to date, and has three meetings left to finalize its recommendations by the end of July. Additionally, Ambassador Horn noted that she will continue to consult with the WTO membership and relevant multilateral agencies which have submitted written input (now available on the WTO website, Document Symbol WT/AFT/*).
Ambassador Horn explained that the approach taken by the Task Force has three components: first, to treat A4T as a complement – not a substitute – to an ambitious Doha Round; second, to utilize the Paris Principles on aid effectiveness to guide the process; and third, to focus on and address the gaps and inefficiencies in the existing system. She noted several gaps that require attention. With respect to Aid for Trade within developing countries, she is concerned with: the lack of integration of trade policy into a country's overall development strategy; the need to increase stakeholder participation; and a lack of national and regional expertise and/or involvement in articulating Aid for Trade needs. With respect to donor response, Ambassador Horn is concerned about: the lack of awareness of existing Aid for Trade mechanisms; the failure to understand A4T's conceptual importance; insufficient coordination across donors; a lack of trust that donor support will be forthcoming to meet identified needs. Regional mechanisms to coordinate Aid for Trade demands, response and solutions also require improvement. At the global level, appropriate data and mechanisms for developing guidelines and good practice need to be developed.
The Task Force is working towards consensus on a number of issues. There is agreement that the scope of A4T should reflect the needs that developing countries identify themselves; country-led mechanisms to assess and prioritize needs are critical. Assistance should be defined broadly and has been proposed to cover: supply-side capacity building and trade-related infrastructure; implementation of trade agreements; trade policy development; and adjustment assistance. Ambassador Horn concluded by re-affirming that Aid for Trade offers an opportunity to deliver on the WTO coherence mandate and aid effectiveness principles.
Roundtable I – View From the Capitals
Dominique Njinkeu, Executive Director, International Lawyers and Economists Against Poverty (ILEAP)
Mr. Bede Lyimo, Assistant Director, Ministry of Industry and Trade, Tanzania
Ms. Joanna Hill, Director for Trade Policy, Ministry of Economy, El Salvador
Mr. Tawfik Ramtoolah, Senior Advisor, Ministry of Finance, Mauritius
Ato Eyessus W Zafu, President, Addis Ababa Chamber of Commerce
This discussion focused on what user countries feel are critical outcomes of the Aid for Trade discussion in Geneva. Panelists discussed the scope of A4T, its relation to the Doha Round, integrating A4T into overall development strategies, and integrating the private sector into trade policy and trade capacity building (TCB) decision making.
Dominique Njinkeu asserted that the most important contribution of Aid for Trade should be to address the needs of developing countries. These efforts must target 'soft infrastructure' (regulatory and rule of law reform) as well as 'hard infrastructure' (transportation and communications systems). A4T should aim to promote private sector development in beneficiary countries. However, Njinkeu cautioned that there are two distinct private sectors which A4T must target: an internationally-focused private sector and a domestic-focused private sector. Njinkeu also highlighted the need for an A4T package to address trade policy development, including negotiating capacity, stating that many existing TCB programs only deal with surface problems. Aid for Trade should focus on a broader, long term commitment to development.
Bede Lyimo reiterated the theme raised first by Ambassador Rugwabiza: Aid for Trade is a complement, not a substitute for progress on the Doha Round. Lymo questioned the appropriateness of the WTO as a forum to discus TCB needs. He warned that attempting to develop an A4T mechanism in the environment of a multilateral trade negotiation (where providing assistance for economic development is not the ultimate goal nor the primary focus) will not result in a system that truly meets developing countries needs. Past efforts to assist the developing countries in this context resulted in unworkable policy instruments – such as the generalized system of preferences (GSP), which is currently being phased out, to the detriment of many developing countries. Therefore, Lymo suggested de-linking A4T from WTO negotiations.
Lyimo also underlined the importance of mainstreaming trade into national development plans. Using Tanzania as an example, he emphasized the need to include local stakeholders in trade and development plans. Lyimo indicated that Tanzania still lacked capacity for trade policy analysis to identify how their trade policies affect growth. In discussing how to progress forward, Lyimo cautioned that donor countries must remain flexible. In order to achieve the Paris Principles, a coordinated, national, sector-wide process must be used to maximize aid efficiency.
Joanna Hill, shared El Salvador's experience with the US-Central America Free Trade Agreement (CAFTA) negotiations. El Salvador began working with the United States and regional organizations to identify TCB needs before official negotiations began.
A national action plan for trade capacity building was developed. It included consultation with stakeholders to identify and communicate needs for trade capacity building. The lack of existing institutional capacity made the initial implementation of this process difficult. However, the development of this action plan, as an end in itself, strengthened the institutional capacity to analyze trade policy and identify needs. Now the institutional infrastructure necessary to deal with trade capacity building issues exists.
Hill explained the utility of a follow up and evaluation mechanism to the National Action Plan. As a complement to its trade capacity building action plans, El Salvador has developed a matrix to map the progress of the action plan, placing actors accountable for this progress. Hill's final comments related to the difficulty of matching identified needs with sources of funding. In some cases donor priorities or timelines do not match identified needs, delaying the response to filling these gaps.
Tawfik Ramtoolah, discussed the economic restructuring of Mauritius after implementing trade reforms. Sugar and textiles, which make up 40-50% of Mauritius's export earnings, have been built on the existence of preference mechanisms currently being phased out of existence. The erosion of these preferences, which has dramatically slowed economic growth, led the Mauritian government to devise a plan (in coordination with the World Bank and the IMF) to prepare for the complete elimination of these preferences. The plan, which will cost approximately 4 million euros to implement, aims to improve the investment climate, with the restructuring of domestic industries and investment in infrastructure. Mauritius needs additional financing, in the form of A4T funding, for the implementation of this plan.
Ato Eyessus Zafu commented on the need to improve the role of the domestic private sector in developing trade capacity, which is largely excluded from discussions on trade policy in many developing countries. Governments often give cursory attention to the needs of the private sector, and consultations will often take place after the decisions are made. In order to allow the private sector to capitalize on the opportunities to gain from trade liberalization they need to be involved in policy formulation.
In the discussion that followed, there were many comments on Lyimo's suggestion to separate the A4T negotiations from the Doha Round. Audience members disagreed with Lyimo and argued that A4T needs to be linked to the Doha Round in order to keep trade-related assistance on donor country agendas. The Doha Round offers developing countries a forum to outline their needs and attaching A4T to WTO negotiations gives developing countries the leverage to ensure that these needs are met. The forum of the Doha Round also allows for maximum transparency for an A4T mechanism, which maximizes accountability and effectiveness.
Ambassador Rugwabiza commented on Zafu's remarks. She noted that the private sector creates growth, but governments play an important role in creating the appropriate enabling environment for doing business, for example by building transportation networks. Zafu agreed that the private sector does need government to provide an enabling environment. Government and business must engage in constructive dialogue.
Roundtable II – How Can We Do Aid for Trade Better?
John Sewell, Senior Scholar & Conference Director, Woodrow Wilson International Center for Scholars (Moderator)
Sheila Page, Senior Research Associate, Overseas Development Institute
Walter North, Deputy Assistant Administrator, USAID
John Panzer, Sector Manager, Trade, World Bank
Cal MacWilliam, Director, Canadian International Development Agency
Mrs. Nohra Rey de Marulanda, Manager, Integration and Regional Programs Department, Inter-American Development Bank
This panel discussion centered on several questions: how does one incorporate trade into development; how can aid effectiveness be maximized; how does one deal with the potential problem of too much aid (the 'Dutch disease'); and what role should the WTO play in Aid for Trade?
Cal MacWilliam of the Canadian International Development Agency (CIDA) opened the discussion, setting out four points on Aid for Trade (A4T). First, A4T should be based upon the Paris Principles of aid effectiveness, highlighting the need for ownership, donor coordination, results-based evaluations, and accountability. Second, A4T is a complement to, not a substitute for, a successful outcome for the Doha Development Round (DDR). Third, although A4T is connected to DDR, it remains somewhat independent from the current WTO negotiations. Trade capacity building (TCB) is an essential component to development, regardless of its attachment to the Doha negotiations. In this vein, TCB should not be viewed as compensation for trade liberalization, but based upon principles of development. Finally, A4T should not be delivered by a new fund or organization, but aid should be given through existing channels using a delivery approach, coordinated among relevant NGOs, development agencies, and development banks. Also, while common approaches to aid delivery and pooling resources are an option for aid delivery, they are not always necessary for A4T to be effective. Mr. MacWilliam did not feel that 'Dutch disease' is a problem relevant to A4T, as trade-related assistance should build the necessary infrastructure to absorb investments and increase country ability to absorb further aid.
Walter North, Deputy Assistant Administrator, USAID, agreed with many of the points made by MacWilliam. North stressed that a new fund devoted to A4T is not needed. Similarly, the WTO should not be burdened with a large operational mechanism to disburse or monitor trade related foreign assistance. Rather the discussion should focus on bringing together development and trade communities so they can collaborate together effectively, as opposed to speaking past each other. Trade needs to be incorporated into development strategies as part of this dialogue. However, the conversation needs to go beyond delineating the amount of resources to spend or an appropriate delivery mechanism for foreign assistance. It also should develop means for country ownership, for example following the Millennium Challenge Corporation (MCC) model, which provides demand driven assistance. This experience proves that countries that decide their own foreign assistance priorities choose to invest in infrastructure, land reform, and small scale entrepreneurship, all sectors categorized as trade capacity building. The A4T task force should expand aid ownership and encourage leadership in developing countries that do not currently qualify for MCC assistance.
John Panzer, Sector Manager for Trade at the World Bank, represented a multilateral perspective. He stressed that the difficulty of A4T is that it blurs the lines between development and trade agendas. Trade needs to become a component of individual country Poverty Reduction Strategy Papers (PRSPs), to allow needs assessment to be done based on an individual, country level analysis. In this context, the Integrated Framework for Trade-Related Technical Assistance to Least Developed Countries is a good model to empower countries to make trade a central pillar of development strategies. A coherent approach needs to be taken, with trade assistance anchored in a long term development strategies. Panzer stressed the need to take advantage of attention the WTO has brought to the A4T agenda under "the bright lights of Doha." To do this, trade and development communities need to seize the moment and push the A4T agenda, convincing donors that trade capacity building is essential to development. It is not what Aid for Trade can do to help progress negotiations forward in Doha, but rather what Doha can do to bring attention to Aid for Trade.
Nohra Rey de Marulanda, Manager of the Integration and Regional Programs Department at the IADB, discussed the Latin American perspective of trade capacity building. Latin American Countries (LAC) have been very active in negotiating FTAs, which have allowed them to formulate several 'lessons learned' on trade capacity building. Her primary assertion was the need to develop local ownership when incorporating trade policies into development agendas. In the LAC region, many constituencies perceive that trade agreements have resulted in growing poverty, thus more effort needs to be put into promoting ownership within both the central government and the legislative branches to allow gains from trade liberalization to be more evenly distributed. In this vein, ownership needs to extend beyond trade constituencies and be targeted more broadly, towards a larger domestic audience to increase popular support for trade. A larger constituency of local expertise must be nurtured in order to increase absorptive capacity and reduce the problems of 'Dutch disease.' The private sector should play a larger role in formulating TCB policy and civil society should be utilized for research and outreach. Finally, Ms. Marulanda stressed that there is not a one-size-fits-all outcome for trade capacity building: TCB programs need to be locally owned and tailored to the development agenda of specific countries.
Shelia Page, a Senior Research Associate from the Overseas Development Institute, brought a unique perspective to this panel, coming from an academic, trade-focused background. She prefaced her comments by stating that A4T is on the Doha agenda because both trade and finance organizations agree that there is a problem with the status quo. The purpose of the A4T Task Force is to put more requirements on both the donors and recipient countries to increase the effectiveness of trade capacity building. She further asserted that the problem with the IF framework is that there is no mechanism to ensure that programs are implemented correctly (on both the recipient and donor ends). One should not attempt to start a TCB program from scratch. The project of the task force should be to identify the gaps that exist and fill these gaps. Page suggested a 'fund of last resort' to fund valuable projects that are not being met by other means. She reminded the audience that Aid for Trade is being negotiated under the WTO because developing countries need to gain something in exchange for further liberalization of trade. The task force must find ways to embed trade principles – transparency and predictability – into A4T and decide how to make A4T 'binding' outside of the WTO framework. This may be done using an external legal mechanism with funding commitments not bound to the WTO. Also, the task force should examine how to ensure effectiveness within the donor community without making the WTO responsible for the monitoring or evaluation of assistance.
Several themes dominated the discussion, notably: the importance of local ownership, the need to maximize aid effectiveness, ensuring funding is predictable and based upon mutual accountability, and the need to fund identified gaps. All of the panelists supported local ownership and the need for evaluation and mutual accountability. As Walter North stated, "These are principles one can't oppose." However, there was significant controversy over the idea of a "donor of last resort." Panelists and audience members all agreed that certain A4T gaps exist, but they differed on whether a new A4T mechanism of last resort was feasible.
Likewise, panelists were divided on whether seeking binding commitments of A4T resources is advisable. No one believe that dollar amounts of assistance would be made binding under the WTO text. However, Shelia Page and several audience members felt strongly that specific A4T commitment mechanisms are needed to 'grease' the trade system and as resources given directly to the 'losers' in the Doha Round where necessary. Those representing development agencies cautioned against dedicating a specific fund or dollar amounts to A4T, saying this undercuts aid principles and local ownership.
Ambassador Rugwabiza reiterated that the IF and A4T Task Force experiences show that there are gaps in the aid mechanisms from both donor and recipient communities. Even when countries identify a clear A4T priority, there is no automatic donor response. This points to the need for additional and more predictable funding.
Keynote Luncheon – Perspectives on Aid for Trade
Assistant USTR for Trade Capacity Building Mary Ryckman and Susan Prowse, a Senior Economic Adviser for the UK Department for International Development, spoke informally during the luncheon, setting out what they saw as areas of agreement on A4T thus far.
Mary Ryckman was optimistic in her evaluation of the morning's discussion, noting consensus on many points. She observed that all see the necessity of integrating trade with development and ensuring that it is "demand driven," taking into account the priorities of the developing nations. She suggested that the local civil society and private sector should assess these needs, and that trade and agriculture ministries should be strengthened to become better partners in the Aid for Trade strategy. She found further concurrence on the desire to involve as many donors as possible, be they the development banks, the private sector, foundations, etc., but suggested labeling them "resource partners," to make it more politically palatable for China, India, and Brazil to participate. And accountability would be needed from both "resource partners" and recipient nations.
What that accountability entailed, however, was one of the issues on which Ryckman noted a constructive disagreement. Although all saw the need to monitor progress, some preferred measuring funds given to hold donors to their commitments, while others, like Ryckman, preferred metrics that gauged the effectiveness of the funds, such as measuring export levels. No one strategy existed for private sector involvement either, although Ryckman pointed to projects recently undertaken by Intel, Starbucks, and GE in conjunction with USAID. Unlike some speakers, she saw great benefit in associating A4T with the Doha Round, as success with Doha would encourage private sector involvement with A4T, and A4T in fact, echoing the comments of the last panel, "greased the wheels" of the trade negotiations. Aside from the major disagreement over what shape the A4T mechanism would take (a fund or multiple funds?), Ryckman was pleased with the progress of the day, declaring only a couple of issues are left where there is not yet agreement. Her conclusion: "we're in pretty good shape."
Susan Prowse praised the June 6 conference as different from other A4T events because it included representatives of the private sector. She pointed to 2005 as the year when support for A4T gained momentum, with the UK holding the EU Presidency and sitting at the head of the G8 and the work of the Commission for Africa. As OECD countries committed to increasing aid from $70 billion a year to $120 billion, they also required further assurance of the effectiveness of aid. For that reason, linking aid to trade reform and infrastructure "makes considerable sense." The Commission for Africa found "enthusiasm" from the private sector to engage with developing countries, but "frustration" in how to do so without becoming entangled in the "spaghetti ball of donor agencies... and bureaucracy."
She repeated Ryckman's observation that there was general agreement about what needed to be fixed, but pointed out that few practical solutions had been proffered. She highlighted suggestions in the forthcoming report of the Integrated Framework (IF) task force. The IF task force was created after the Hong Kong ministerial to reform the largely ineffectual IF, which had been created in 1996 to coordinate the work of the various agencies involved in trade assistance with developing countries' development agendas. The task force criticized the inefficiencies plaguing the system, including the fact that Tanzania was required to provide more than 2000 reports to donor agencies in one year. To remedy these redundancies, the task force recommended "mainstreaming" the national development plans, harmonizing all multilateral and bilateral donor agencies' strategies around one common, country-specific approach.
It also recommended establishing inter-ministerial committees in each country, to coordinate among the finance, planning, and trade ministries, along with civil society and private sector involvement, to discern the country's development needs and strategy. The costs of such an initiative, however, exceeds the budget of the IF, a paltry $20 million (spread among 49 LDCs over 8 years). Prowse recommends instead a $400 million fund that would increase capacity in trade ministries, which often are poorly funded, to provide trade strategies that focus more on policy than assistance. A global trade strategy template could be developed to guide each developing country's efforts.
Many at DFID resist vertical or dedicated funds for A4T. Prowse is more pragmatic, noting that such funds already exist, and thus could be employed as a last resort for specific issues. She concluded with three points. She argued that a fair and free trading system is a "Global Public Good," providing aggregate global gains. However, the concerns of developing nations must be met to achieve this. Secondly, failure of the Doha Development Round would not mean the status quo, but rather would see the world slump back into increased protectionism and regionalism. Third, while development aid has achieved higher profile and has been increased, so should trade assistance.
Roundtable III – Private Sector Government Partnerships
Kent Hughes, Director, STAGE Program, WWICS (moderator)
Arthur Litman, Vice President, Regulatory Affairs & Compliance, FedEx Trade Networks
Karl-Heinz Schlaiss, Senior Manager Corporate Relations, Daimler Chrysler
Scott Miller, Director, National Government Relations, Procter and Gamble
Susan Bornstein, Director, Program Development, TechnoServe
Robert H. Kapp, Senior Advisor, Realizing Rights
This panel emphasized the roles that businesses and civil society play in Aid for Trade.
Arthur Litman, from FedEx Trade Networks, stated that the basic service of FedEx is to facilitate global trade, providing access to global supply chains. FedEx has been involved in A4T programs, collaborating with USAID and other donors to standardize and improve customs services. FedEx also sponsored an analysis on the benefit of real access to the global market entitled, "The Power of Access." The study developed an index which ranked seventy-five countries according to their level of access to goods, services and information, which considerably increases quality of life. Access is measured not by how open a country appears on paper, according to tariff levels, but rather by the real access people have to goods and services, accounting for gaps in infrastructure and rule of law. (The study can be found at www.access.fedex.com)
He noted that FedEx is also a part of the Trade Facilitation Alliance, a group of businesses that support trade capacity building in the Doha Round. He underlined the importance of multilateral trade reform to the member companies of the Alliance, but noted that they believe that getting the appropriate infrastructure for trade is equally important.
Karl-Heinz Schlaiss of Daimler Chrysler underlined the importance of stimulating entrepreneurship in developing countries. He focused on an initiative that Daimler Chrysler has set up to train entrepreneurs in the Southern African Development Community (SADC) countries where the company is investing. The program has been presented in a local context and now includes a mentorship component.
Susan Bornstein of TechnoServe spoke from the viewpoint of a not-for-profit organization delivering trade capacity building. TechnoServe focuses on developing small and mid-sized enterprises to support sustainable growth in developing countries. The activities of TechnoServe are based upon the concept that market access does not equal market entry. They approach development on a micro level, focusing on helping create an environment where small firms can prosper and take advantage of liberalized trade. Economic analysis is used to determine what types of government policies will be most conducive to export growth. They also analyze the financial and physical infrastructure to determine what investments a country needs to spur growth.
Once TechnoServe completes solid analysis of agovernment's efforts, they work with local firms to improve the business environment. Their TCB activities allow them to gain credibility with the government, and can encourage steps to improve the business and trading climate. There is a heavy focus on finding "visionary entrepreneurs" and fostering local ownership and leadership. TechnoServe has a long term horizon for development. This long term planning requires significant donor flexibility. In particular, she urged donors to reorient their thinking – rather than making annual funding commitments, donors should make commitments to see results.
Scott Miller of Proctor and Gamble (P&G) candidly stated that corporations are interested in trade capacity building primarily to develop supply chains. The business environment of today is global and horizontally integrated. This requires creating complex, specialized supply networks in order to maintain business competitiveness. P&G does this by finding small companies with which to partner. These partnerships with local businesses help develop capacity to produce and export. In other words, it is capacity building. Large companies like Proctor and Gamble also develop partnerships with smaller businesses and NGOs (like TechnoServe) to improve the ability of small stakeholders to respond to market forces and educate and train l
Aid for Trade: Prospects for the Future